Francis Chou on Sovereign debt (in the Annual Letter of 2009)

“It is hard to believe that governments can and do default on their debts and, as the following table shows, even with their power of taxation and the ability to print money, governments have to obey the laws of economics. Just like an individual or a corporation, if governments cannot service their debt, they either default or have their debt rescheduled. As the table also shows, it is not only poor emerging third world or African countries run by dictators that default, but also long established democracies with duly elected governments that are governed by a rule of law and that are considered modern economies. It is an eye opener to see that since the year 1800, Greece has spent roughly 50% of its time either in default or debt rescheduling; Spain has spent approximately 23% of its time in default; and Mexico and Russia around 40%.”